How to survive a tax audit?
Our regular partners, Vetrov & Partners Law Firm, continues to acquaint you with the most pressing issues of the legal aspect of iT-entrepreneurship and registration of intellectual property rights. A new article from lawyers from Winds and Partners is about taxes and tax audits.
According to official information from the Federal Tax Service, since 2010 the rate of gain in tax disputes in favor of the budget for the amounts disputed by taxpayers has grown by 30%. Over the past year, this indicator amounted to 74% in all cases involving tax authorities, which is 6% more than in the previous year. In addition, in 2013, 40 billion rubles more were considered in favor of the budget than last year.
Just think about it, 74% (!!!) of tax disputes ends in favor of the tax authorities. What is the reason for this? First of all, it should be recognized that tax administration by the tax authorities has become objectively better than it was a few years ago. Even the large staff turnover in inspections does not adversely affect statistics. This also confirms that the tax authorities have developed a clear and understandable mechanism for identifying tax arrears and proving relevant facts in court.
At the moment, a bill introduced by the President of the Russian Federation is ripening in the State Duma that allows initiating criminal cases of tax crimes in a general manner, without prior taxpayer verification by the tax inspectorate. As practice shows, often taxpayers dig their own holes when they commit the wrong and thoughtless actions at the stage of conducting an audit against them.
So, let's talk about what a check is and what to do with it.
1. A tax audit is cameral and field.
2. A desk audit is carried out every year after the submission of the declaration.
3. As a rule, the selection of taxpayers for field inspection is carried out automatically by comparing various indicators.
4. The selection criteria are specified in the Order of the Federal Tax Service of Russia dated 05.30.2007 N MM-3-06 / 333 @ “On Approving the Concept of a Planning System for Field Tax Audits”.
1. If you cannot provide the tax authority with premises for inspection, notify them in writing. The audit will be conducted without the presence of employees in your office.
2. Carefully review each document requirement. Documents that the inspection is not entitled to request should not be provided.
3. No additional summaries, references or other documents should be made, the preparation of which is not mandatory.
4. Submit documents on the last day of the term specified in the request.
5. If you cannot provide the documents on time, ask the inspection in writing to extend the deadline for the submission of documents with justification of the reasons.
6. Make a detailed inventory of the documents provided.
7. Always submit to the inspection only copies of documents. Even if the volume of documents is very large and you have “no time” for copying, hire a staff member for photocopying for a while.
8. Important rule: no need to follow up on the inspection staff. Strictly follow only those requirements that are required to comply with the law. One of the biggest misconceptions is that when you defend your position, you “quarrel” and lose the “loyalty” of the inspectors. There is no loyalty to the taxpayer initially.
9. Warn your counterparties that documents may be requested from them. Ask them to respond promptly to tax authorities.
1. Do not go to the interrogation without preparing. You must formulate answers to your questions in advance.
2. If there are “doubtful” companies among your counterparties, they will certainly ask you about the criteria for choosing this counterparty, about the conditions for working with such companies, find out all the details of deliveries (work, services, etc.), including with whom did you sign the relevant documents, how the delivery was carried out, where the products were stored, etc.
3. You should be aware that, as a rule, they are summoned for questioning by the head, chief accountant and those responsible for the acceptance or shipment of goods (usually these are persons are indicated in invoices, acts, etc.).
4. As a general rule, the head of the company cannot be answered with the questions “I don’t know,” “I don’t remember,” “it was a long time ago, I forgot it.” Such answers will only aggravate the situation and confirm your ignorance of the company.
For example, if you are asked about working with one of the counterparties, you must certainly know how you started working with the counterparty, what goods he supplied, what the price of the contract is. If you are not aware of the details of the interaction with the counterparty, indicate which department in your company is dealing with this issue.
5. Do not fantasize. If the question is not included in the scope of your job responsibilities, then answer: "This question is outside the scope of my job responsibilities."
6. If you are not sure of the answer or don’t know exactly what to answer, refer to Article 51 of the Constitution and indicate that you will answer the question only in the presence of your lawyer.
7. After interrogation, ask the inspector to provide you with a copy of the interrogation record.
1. Objections to the act may be filed within a month. However, even if you missed this deadline, you can still submit them before considering tax audit materials.
2. Carefully study the act of checking for errors by the tax authorities. They can be procedural, factual and substantive.
3. Almost all errors of a procedural nature (non-observance of the timing of the audit; not bringing to the taxpayer any document attached to the act; not raising any questions before the experts) are not independent grounds for declaring the final decision of the tax authority illegal.
Do not waste your time reporting such violations if they do not lead to any fundamental violations of your rights.
4. Exceptions to the rule regarding procedural violations that may be grounds for canceling a decision of the tax authority are consideration of the audit materials without your notice or signing of the decision of the tax authority by a person who did not actually participate in the examination of the audit materials.
It should be borne in mind that when appealing a decision on these grounds, a higher inspection has the right to consider all the audit materials on its own and make a new decision.
5. All objections of the taxpayer are reduced to two key points: -
challenging the reliability (completeness) of the evidence provided by the inspection;
- objections to the merits.
6. When contesting the reliability (completeness) of evidence of an inspection, it must be remembered that such arguments in objections to an act can only be made when the inspection cannot supplement the evidence.
For example, the inspection claims that the supplier company could not deliver the goods to you, because she does not own vehicles. However, the inspectorate did not clarify the issue of whether the supplier company involved carriers to provide such a service.
From the tactical point of view of the conduct of the case, the argument about the incomplete investigation by the inspection of factual circumstances should be stated not in objections, but in a complaint against the decision of the inspection.
7. Carefully study all the documents on which the inspection bases its conclusions. Some errors during the interrogation of witnesses (not an explanation of their rights to them or a warning about criminal liability) may be grounds for excluding such evidence.
8. Substantive objections - this is a misinterpretation of the norms of tax legislation by the inspection or incorrect conclusions regarding the actual circumstances of the case.
For example, when the inspection claims that a transaction is subject to VAT, and the taxpayer claims the opposite.
9. In preparing substantive objections regarding the application of tax legislation, it is necessary to consistently provide arguments for upholding one’s position, based on the interpretation of the text of the Tax Code itself; practice of the Supreme Arbitration Court of the Russian Federation; court practice in your county; letters of the Ministry of Finance and UFNS.
10. If the claims of the tax authorities are justified, it is too early to give up. Try to independently check all tax charges for the last three years. Perhaps an overpayment will be revealed, or your right to receive deductions.
In our practice, there was a case when, during an on-site audit, a taxpayer was credited with several million arrears, but when analyzing the documents of the taxpayer it turned out that he did not fully declare VAT for refund. As a result, all issues were closed by offsetting requirements.
1. Issue a power of attorney to participate in the proceedings in the inspection. The power of attorney for the director is not issued, because he acts on the basis of the charter.
2. Your statement to the reviewers should not be limited to reading out objections. You can’t say the way you write.
3. Sound your points thesis. As mentioned above, you should not waste time indicating minor procedural violations.
4. Feel free to provide additional documents in support of your position, reviews of law enforcement practice.
5. Both you and the inspection can try to “bargain”: the inspection will remove part of the claim in exchange for the fact that the other part you acknowledge. Such proposals should be approached carefully, evaluating all possible prospects of the case.
Often this can be a good way to "reduce" the size of additional charges.
6. If you have no objection on the merits, and you understand that you have to pay the arrears, ask the inspection to reduce the size of the fine, citing extenuating circumstances. For example, that you are brought to tax liability for the first time.
7. If you believe that some action or evidence will be at your fingertips, then ask the inspection in writing, making a written application. For example, you think that the interrogation of some witness will affect the formation of evidence in your favor - ask him to call, enclosing a list of questions.
1. Sometimes, based on the results of consideration of objections, the inspectorate appoints additional tax control measures.
2. Within the framework of measures, the inspection is not entitled to investigate and collect evidence for those episodes that are not indicated in the inspection report.
3. If you require documents that are not relevant to the episodes set forth in the act, then you can refuse to provide them.
4. If you previously refused to testify as a witness, referring to Article 51 of the Constitution, ask the inspectors to question you again. At the same time, do not forget that you should have a copy of the previous interrogation protocol in your hands with all the questions.
5. After all the events, the tax authority is obliged to familiarize you with the documents and information that was received as part of these events.
6. Based on the results of the events, a decision is made.
1. For the basis of the complaint, you take the objections that have been prepared previously.
2. The objections must be processed: remove those arguments that were accepted by the inspection and were not included in the final decision; if the decision includes additional arguments from the inspection, you should submit counter-arguments.
3. Add to the complaint those arguments that you did not voice in the objections for tactical reasons. As a rule, these are arguments regarding the incompleteness of the evidence base by the inspection, or about the inadmissibility (depravity) of any evidence.
4. Use all means to provide, together with the complaint, additional evidence in your favor: conducting an examination; interviewing witnesses with the help of a lawyer; independent inspection of premises, etc.
5. Check the tax calculation made by the inspection.
6. Be sure to file your complaint through the office so that you have a note on the acceptance of the complaint.
7. Complaints are considered, as a rule, without calling a taxpayer.
8. If the decision of the inspection on your complaint is left unchanged, then you will be asked to pay arrears and penalties.
9. Remember that if you intend to go to court to uphold your position, then you must, as soon as possible, submit a reasoned statement on the application of interim measures in the form of suspension of the decision of the inspection. Otherwise, your bank accounts will be arrested, and the amount of additional charges will be forcibly debited from your account.
Andrei Bezrukov, partner at Vetrov & Partners Law Firm.
Ask your questions in the comments, we will definitely answer the most important ones in the next posts of our weekly legal column on the VCStart.com collective investment platform blog . We remind you that our project, created to attract venture capital investments in startups, is fully launched in 20 days. Currently, the platform is working to register investors and startup authors in pre-launch mode.
According to official information from the Federal Tax Service, since 2010 the rate of gain in tax disputes in favor of the budget for the amounts disputed by taxpayers has grown by 30%. Over the past year, this indicator amounted to 74% in all cases involving tax authorities, which is 6% more than in the previous year. In addition, in 2013, 40 billion rubles more were considered in favor of the budget than last year.
Just think about it, 74% (!!!) of tax disputes ends in favor of the tax authorities. What is the reason for this? First of all, it should be recognized that tax administration by the tax authorities has become objectively better than it was a few years ago. Even the large staff turnover in inspections does not adversely affect statistics. This also confirms that the tax authorities have developed a clear and understandable mechanism for identifying tax arrears and proving relevant facts in court.
At the moment, a bill introduced by the President of the Russian Federation is ripening in the State Duma that allows initiating criminal cases of tax crimes in a general manner, without prior taxpayer verification by the tax inspectorate. As practice shows, often taxpayers dig their own holes when they commit the wrong and thoughtless actions at the stage of conducting an audit against them.
So, let's talk about what a check is and what to do with it.
General
1. A tax audit is cameral and field.
2. A desk audit is carried out every year after the submission of the declaration.
3. As a rule, the selection of taxpayers for field inspection is carried out automatically by comparing various indicators.
4. The selection criteria are specified in the Order of the Federal Tax Service of Russia dated 05.30.2007 N MM-3-06 / 333 @ “On Approving the Concept of a Planning System for Field Tax Audits”.
Check started
1. If you cannot provide the tax authority with premises for inspection, notify them in writing. The audit will be conducted without the presence of employees in your office.
2. Carefully review each document requirement. Documents that the inspection is not entitled to request should not be provided.
3. No additional summaries, references or other documents should be made, the preparation of which is not mandatory.
4. Submit documents on the last day of the term specified in the request.
5. If you cannot provide the documents on time, ask the inspection in writing to extend the deadline for the submission of documents with justification of the reasons.
6. Make a detailed inventory of the documents provided.
7. Always submit to the inspection only copies of documents. Even if the volume of documents is very large and you have “no time” for copying, hire a staff member for photocopying for a while.
8. Important rule: no need to follow up on the inspection staff. Strictly follow only those requirements that are required to comply with the law. One of the biggest misconceptions is that when you defend your position, you “quarrel” and lose the “loyalty” of the inspectors. There is no loyalty to the taxpayer initially.
9. Warn your counterparties that documents may be requested from them. Ask them to respond promptly to tax authorities.
Interrogation of witnesses
1. Do not go to the interrogation without preparing. You must formulate answers to your questions in advance.
2. If there are “doubtful” companies among your counterparties, they will certainly ask you about the criteria for choosing this counterparty, about the conditions for working with such companies, find out all the details of deliveries (work, services, etc.), including with whom did you sign the relevant documents, how the delivery was carried out, where the products were stored, etc.
3. You should be aware that, as a rule, they are summoned for questioning by the head, chief accountant and those responsible for the acceptance or shipment of goods (usually these are persons are indicated in invoices, acts, etc.).
4. As a general rule, the head of the company cannot be answered with the questions “I don’t know,” “I don’t remember,” “it was a long time ago, I forgot it.” Such answers will only aggravate the situation and confirm your ignorance of the company.
For example, if you are asked about working with one of the counterparties, you must certainly know how you started working with the counterparty, what goods he supplied, what the price of the contract is. If you are not aware of the details of the interaction with the counterparty, indicate which department in your company is dealing with this issue.
5. Do not fantasize. If the question is not included in the scope of your job responsibilities, then answer: "This question is outside the scope of my job responsibilities."
6. If you are not sure of the answer or don’t know exactly what to answer, refer to Article 51 of the Constitution and indicate that you will answer the question only in the presence of your lawyer.
7. After interrogation, ask the inspector to provide you with a copy of the interrogation record.
Obtaining an act of verification. Preparation of objections to the act
1. Objections to the act may be filed within a month. However, even if you missed this deadline, you can still submit them before considering tax audit materials.
2. Carefully study the act of checking for errors by the tax authorities. They can be procedural, factual and substantive.
3. Almost all errors of a procedural nature (non-observance of the timing of the audit; not bringing to the taxpayer any document attached to the act; not raising any questions before the experts) are not independent grounds for declaring the final decision of the tax authority illegal.
Do not waste your time reporting such violations if they do not lead to any fundamental violations of your rights.
4. Exceptions to the rule regarding procedural violations that may be grounds for canceling a decision of the tax authority are consideration of the audit materials without your notice or signing of the decision of the tax authority by a person who did not actually participate in the examination of the audit materials.
It should be borne in mind that when appealing a decision on these grounds, a higher inspection has the right to consider all the audit materials on its own and make a new decision.
5. All objections of the taxpayer are reduced to two key points: -
challenging the reliability (completeness) of the evidence provided by the inspection;
- objections to the merits.
6. When contesting the reliability (completeness) of evidence of an inspection, it must be remembered that such arguments in objections to an act can only be made when the inspection cannot supplement the evidence.
For example, the inspection claims that the supplier company could not deliver the goods to you, because she does not own vehicles. However, the inspectorate did not clarify the issue of whether the supplier company involved carriers to provide such a service.
From the tactical point of view of the conduct of the case, the argument about the incomplete investigation by the inspection of factual circumstances should be stated not in objections, but in a complaint against the decision of the inspection.
7. Carefully study all the documents on which the inspection bases its conclusions. Some errors during the interrogation of witnesses (not an explanation of their rights to them or a warning about criminal liability) may be grounds for excluding such evidence.
8. Substantive objections - this is a misinterpretation of the norms of tax legislation by the inspection or incorrect conclusions regarding the actual circumstances of the case.
For example, when the inspection claims that a transaction is subject to VAT, and the taxpayer claims the opposite.
9. In preparing substantive objections regarding the application of tax legislation, it is necessary to consistently provide arguments for upholding one’s position, based on the interpretation of the text of the Tax Code itself; practice of the Supreme Arbitration Court of the Russian Federation; court practice in your county; letters of the Ministry of Finance and UFNS.
10. If the claims of the tax authorities are justified, it is too early to give up. Try to independently check all tax charges for the last three years. Perhaps an overpayment will be revealed, or your right to receive deductions.
In our practice, there was a case when, during an on-site audit, a taxpayer was credited with several million arrears, but when analyzing the documents of the taxpayer it turned out that he did not fully declare VAT for refund. As a result, all issues were closed by offsetting requirements.
Inspection proceedings
1. Issue a power of attorney to participate in the proceedings in the inspection. The power of attorney for the director is not issued, because he acts on the basis of the charter.
2. Your statement to the reviewers should not be limited to reading out objections. You can’t say the way you write.
3. Sound your points thesis. As mentioned above, you should not waste time indicating minor procedural violations.
4. Feel free to provide additional documents in support of your position, reviews of law enforcement practice.
5. Both you and the inspection can try to “bargain”: the inspection will remove part of the claim in exchange for the fact that the other part you acknowledge. Such proposals should be approached carefully, evaluating all possible prospects of the case.
Often this can be a good way to "reduce" the size of additional charges.
6. If you have no objection on the merits, and you understand that you have to pay the arrears, ask the inspection to reduce the size of the fine, citing extenuating circumstances. For example, that you are brought to tax liability for the first time.
7. If you believe that some action or evidence will be at your fingertips, then ask the inspection in writing, making a written application. For example, you think that the interrogation of some witness will affect the formation of evidence in your favor - ask him to call, enclosing a list of questions.
Additional tax control measures
1. Sometimes, based on the results of consideration of objections, the inspectorate appoints additional tax control measures.
2. Within the framework of measures, the inspection is not entitled to investigate and collect evidence for those episodes that are not indicated in the inspection report.
3. If you require documents that are not relevant to the episodes set forth in the act, then you can refuse to provide them.
4. If you previously refused to testify as a witness, referring to Article 51 of the Constitution, ask the inspectors to question you again. At the same time, do not forget that you should have a copy of the previous interrogation protocol in your hands with all the questions.
5. After all the events, the tax authority is obliged to familiarize you with the documents and information that was received as part of these events.
6. Based on the results of the events, a decision is made.
Appealing an inspection decision
1. For the basis of the complaint, you take the objections that have been prepared previously.
2. The objections must be processed: remove those arguments that were accepted by the inspection and were not included in the final decision; if the decision includes additional arguments from the inspection, you should submit counter-arguments.
3. Add to the complaint those arguments that you did not voice in the objections for tactical reasons. As a rule, these are arguments regarding the incompleteness of the evidence base by the inspection, or about the inadmissibility (depravity) of any evidence.
4. Use all means to provide, together with the complaint, additional evidence in your favor: conducting an examination; interviewing witnesses with the help of a lawyer; independent inspection of premises, etc.
5. Check the tax calculation made by the inspection.
6. Be sure to file your complaint through the office so that you have a note on the acceptance of the complaint.
7. Complaints are considered, as a rule, without calling a taxpayer.
8. If the decision of the inspection on your complaint is left unchanged, then you will be asked to pay arrears and penalties.
9. Remember that if you intend to go to court to uphold your position, then you must, as soon as possible, submit a reasoned statement on the application of interim measures in the form of suspension of the decision of the inspection. Otherwise, your bank accounts will be arrested, and the amount of additional charges will be forcibly debited from your account.
Andrei Bezrukov, partner at Vetrov & Partners Law Firm.
Ask your questions in the comments, we will definitely answer the most important ones in the next posts of our weekly legal column on the VCStart.com collective investment platform blog . We remind you that our project, created to attract venture capital investments in startups, is fully launched in 20 days. Currently, the platform is working to register investors and startup authors in pre-launch mode.